Basel Committee Outlines Plan

The Basel Committee has announced:

a comprehensive strategy to address the fundamental weaknesses revealed by the financial market crisis related to the regulation, supervision and risk management of internationally-active banks.

The key building blocks of the Committee’s strategy are the following:

  • strengthening the risk capture of the Basel II framework (in particular for trading book and off-balance sheet exposures);
  • enhancing the quality of Tier 1 capital;
  • building additional shock absorbers into the capital framework that can be drawn upon during periods of stress and dampen procyclicality;
  • evaluating the need to supplement risk-based measures with simple gross measures of exposure in both prudential and risk management frameworks to help contain leverage in the banking system;
  • strengthening supervisory frameworks to assess funding liquidity at cross-border banks;
  • leveraging Basel II to strengthen risk management and governance practices at banks;
  • strengthening counterparty credit risk capital, risk management and disclosure at banks; and
  • promoting globally coordinated supervisory follow-up exercises to ensure implementation of supervisory and industry sound principles.

[Chairman of the Basel Committee ] Mr Wellink further noted that the Basel Committee expects to issue proposals on a number of these topics for public consultation in early 2009, focusing on the April 2008 recommendations of the Financial Stability Forum. The other topics will be addressed over the course of 2009

Interesting. It looks like a repudiation of OSFI’s debasement of Bank Capital, an intent to look at the internationally controversial leverage ratio (or Assets to Capital Multiple, in Canada), and … I don’t know: a threat (? depends on what “leveraging” means) to regulate bonuses (? depends on what “governance” means).

OSFI should take careful note of the intent “to issue proposals on a number of these topics for public consultation”. That’s how the professionals do things, guys.

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